A Cheer For SEC Chairman Mary Jo White And Good Government

Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

By Bradley Smith

The White House budget office released the latest “unified agenda” of regulatory actions last week revealing next year’s federal regulatory priorities. Missing from that list:

regulation of corporate political spending. This is great news for advocates of free speech and good government.

The campaign to have the SEC regulate corporate political activity was a partisan boondoggle from start to finish. Hundreds of thousands of form letters urging the SEC to regulate corporate political spending, most raging about the Supreme Court decision in Citizens United, were ginned up by liberal advocacy groups. Democratic lawmakers pressured the SEC to regulate. The reason was simple – many Democrats believe that such regulation would harm their political opposition. Frustrated by the Federal Election Commission’s bipartisan requirement for adopting regulations and congressional inaction, many partisans thought that they could pressure the SEC, with its 3-2 Democratic majority, to adopt rules on a partisan basis.

The proposed regulatory mission was one for which the SEC is ill suited, a distraction from its work regulating capital markets and protecting investors, and would have required the agency to butcher its longstanding and important standards of materiality. The SEC’s professional staff was purportedly aghast at the thought of being dragged into political regulation, especially after seeing the IRS engulfed in scandal by its regulations on political activity.

SEC Chair Mary Jo White deserves kudos for refusing to let the agency be yanked into this fiasco. Normally one would write, “I can only imagine the pressure she was under.” In this case, however, I know the pressure she was under, because I’ve had a similar experience.

In 2004, I was Chairman of the Federal Election Commission. After President Bush cynically signed the McCain-Feingold campaign finance law in 2002, Republicans believed the law would be declared unconstitutional. Democrats, however, set about establishing a network of non-party organizations that would effectively allow them to raise and spend money outside the law’s restraints. These organizations, such as Americans Coming Together, and others, called “527s” – were largely exempt from the law.

When the Supreme Court upheld McCain-Feingold in December of 2003, Republicans and the Bush campaign realized that they had been caught flat-footed. The Bush presidential campaign then demanded, on the flimsiest of legal theories, that the FEC regulate these Democratic-oriented 527s. Enormous pressure was placed on the FEC to act. Though the general perception was that such regulation would harm the President’s Democratic rivals, Democratic Commissioner Scott Thomas was widely expected to (and eventually did) vote for the regulation, based on his principles favoring extensive regulation of such political activity. Thus, if the 3 Republican Commissioners would vote for regulation, the Bush campaign thought it could silence the Democratic-oriented 527s.

Like the SEC today, we were bombarded with comments in the regulatory process, most having little to do with the legal merits of regulation or the FEC’s questionable authority to pass such rules. I believed that the proposed regulation was both improper under the statute and a bad policy choice even if permissible. Once it became clear that I would not support such regulation, I was subjected to whispering campaigns through Republican circles, and both public and privately pressured to act. It was not a pleasant spring and summer. Similar pressure was probably brought to bear on Mary Jo White.

In this day and age, when it seems that everything is twisted and abused for partisan advantage, it is inspiring to see a public official refuse to twist the law for partisan gain. Chair White kept her eye on the agency’s true mission, and resisted pressure for partisan action that would have endangered that mission.

I don’t personally know Chair White, but from afar I can tell her this: the FEC voted against the ill-considered and legally dubious regulation of 527s sought by Republicans in 2004 (I was joined by my Republican colleague David Mason, as well as two Democrats, in voting against the proposed rules). Today, most Republicans and Democrats agree that that was the correct legal decision. It remains one of my proudest accomplishments at the FEC. I suspect that a decade from now one thing Chair White will be remembered for is saving the SEC from the tar pit of campaign finance regulation, thereby preserving the agency for its intended purposes. And I predict that she’ll look back and consider it one of the best moments of her tenure.

Bradley Smith is the former Chairman of the Federal Election Commission.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.